The ČEZ Group Initiated International Arbitration Procedures Against Albania

Today, ČEZ has officially informed the Albanian Government about its intention to initiate international arbitration. The ground is the non-protected investment in the power distribution company of CEZ Shpërndarje. The ČEZ Group expects to receive compensation for the damage incurred as the company is entitled to the compensation according to international law.

ČEZ derives its entitlement to the compensation based on an agreement made between the Czech Republic and the Albanian Republic to support and mutually protect their investments, and also on the Energy Charter Treaty, which defines international cross-border cooperation in the energy sector, and which both countries have signed.

The ČEZ Group entered the Albanian market in May 2009 by acquiring a 76% equity stake in the Albanian power distribution company; the remaining 24% stayed in the hands of the Albanian Government. The value of the initial investment was EUR 102 million, which is about ten times less than other investors paid for acquiring a distribution company in Romania. The Albanian acquisition accounts only for 3.6% of ČEZ’s foreign investments and for less than a percent (0.7%) of its total investments. The ČEZ Group owns significant energy assets in seven foreign countries, and in all of them except for Albania the investments generate or exceed the expected return.

 

The situation in Albania got more complicated early in 2012 when, due to the drastic drought of last year, KESH, as the Albanian state-owned power producer, had to import power from abroad at much higher prices, which brought it on the verge of bankruptcy; the company would not have survived without receiving aid from the Albanian Government. The local Government tried to resolve the situation early this year with a decision unprecedented in Europe: All costs were placed on the shoulders of the foreign investor, ČEZ Shpërndarje. Therefore, as of January 1, 2012, the local regulator ordered that the price charged by KESH to the foreign investor should be 91% higher. Following intensive negotiations, this negative impact could be partially alleviated by the regulator’s new decision to reduce the price of input power supplied by the KESH state-owned power plants from 2,830 to 2,200 ALL/MWh, which lowered the year-on-year price growth from 91% to 49%. Furthermore, a study was approved that determined the initial value of bad debt. However, the Albanian tax authority’s order imposing a penalty of ALL 4 billion (approx. EUR 28 million) for outstanding taxes and penalties and another ALL 430 million (approx EUR 3 million) for failing to meet the agreed electricity import levels has brought yet another turn in the matter. In early October 2012, the ČEZ Group changed the staffing of the Supervisory Board and the Board of Directors of ČEZ Shpërndarje, replacing the original personnel with independent experts in order to calm down the heightened style of negotiations. On Friday, November 16, after a series of unsuccessful negotiations with the Albanian party, ČEZ Shpërndarje decided to discontinue power supply to all Albanian state-owned waterworks that have in the long run failed to settle their bills for power. However, the Albanian Police began to obstruct the steps needed to disconnect the facilities from power and even arrested six employees of ČEZ Shpërndarje based on a crime report filed by the waterworks on the grounds of alleged misuse of authority. On the following day, based on an unprecedented court order, ČEZ Shpërndarje was forced to reconnect again all the waterworks and other governmental institutions. On January 21, 2013, the Albanian regulator revoked the relevant license for CEZ Shpërndarje and appointed an administrator who, under the regulator’s supervision, has taken over the company’s management, including all decision-making powers and responsibility for the company’s operations, thus assuming the rights and powers of the corporate statutory bodies.

Barbora Půlpánová, ČEZ’ Spokesperson

Published
7
February 2013